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Investors were eager to see first-quarter results in the Canadian marijuana market for recreational purposes. In recent days, they have achieved the first results of two of Canada's largest marijuana companies.
Aurora Cannabis (NYSE: ACB)and Cover growth (NYSE: CGC)each reported earnings for its quarters ended December 31, which included 11 weeks of pot sales. Although several other Canadian producers still have to provide their quarterly updates, what Aurora and Canopy have to say provides strong clues as to what investors can expect from other marijuana stocks.
Source of the image: Getty Images.
Sales increase – but do not rely on large market shares
The sales growth recorded by Aurora Cannabis and Canopy Growth in recent quarters has been impressive. Aurora recorded an increase in its net revenues of 363% from one year to the next. Canopy's net income climbed 283%. As you can imagine, this phenomenal growth stems from the initial sales of recreational pot in Canada.
When Cronos Group (NASDAQ: CRON), Tilray (NASDAQ: TLRY)and other major Canadian marijuana growers report their financial results in the coming weeks. So you can bet they will also announce strong sales growth. But do not expect other companies to have a significant share of the Canadian recreational pot market.
According to Health Canada data, Aurora Cannabis reported 20% of its market share on consumer sales. The company has captured this market share with sales of recreational jars totaling Can $ 21.6 million. Canopy's recreational sales were much higher – $ 57.7 million. Between Aurora and Canopy, there is not much market share left for other producers.
Nor do you forget that Aurora and Canopy claim production capabilities far superior to those of their peers. A company can only sell what it can produce or supply from another marijuana growers. The demand for leisure pot in Canada exceeding the supply, the market share will be directly related to the capacity much more than any other differentiating factor between different brands of products.
A blurred image for medical cannabis
According to the Aurora and Canopy updates, there could be significant differences in the performance of other companies in the Canadian medical cannabis market.
Aurora Cannabis reported that sales of dried cannabis for medical purposes in Canada increased by 12% from the previous quarter. On the other hand, Canopy Growth's medical cannabis sales in Canada have fallen. Why are so different?
The quarterly comparison of Aurora was facilitated by MedReleaf's quarterly full business figure. The company finalized the MedReleaf acquisition on July 25, 2018.
Canopy attributed its decline in drug sales in Canada to two factors. First, the company believes that the opportunity for patients to purchase recreational jars had fewer patients requesting medical cannabis prescriptions. Secondly, Canopy targeted its well-known brand Tweed in the recreational marijuana market and refocused its brand Spectrum on the medical market.
Because of the unique circumstances that characterize Aurora and Canopy, it is difficult to know for sure how other companies, such as Cronos and Tilray, will manage when they report sales of medical cannabis in Canada. However, Canopy's hypothesis that some patients would buy marijuana instead of buying medical cannabis could result in a decrease or decrease in sales of medical cannabis for other marijuana growers. .
His really early for international market opportunities
Aurora Cannabis and Canopy Growth both spoke of the tremendous opportunities offered by the international marijuana markets. However, relatively weak international sales have shown how early it is for many of these markets.
Aurora has generated only 6% of total cannabis sales from international markets, mainly from Germany, and the company reported that cannabis sales in Europe increased by only 1.8% compared to in the previous quarter.
Canopy Growth experienced stronger growth in international sales, but still accounted for only 15% of the company's medical cannabis sales and just over 3% of its total net income.
Tilray could outperform Aurora and Canopy on the international front. In September 2018, Tilray became the first Canadian marijuana producer to export both cannabis oil and cannabis flower products to Germany. However, overall, you can expect international markets to remain a great opportunity for marijuana growers, but a small percentage of their current income.
The big picture
The latest quarterly updates seem to bode well for other Canadian marijuana stocks. But a snapshot of only one quarter does not provide a complete overview of the industry.
Aurora and Canopy are expecting higher margins later in 2019 and the prospect of launching new products later this year in Canada, including beverages and cannabis-based food products. Aurora and Canopy are also optimistic about the possibility of entering the US market in the not-too-distant future.
These encouraging prospects should also apply to other marijuana stocks, and the global market will continue to grow in the long term. As the old saying goes, a rising tide lifts all boats.
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